HST and GST: CRA Provides Answers
The Canada Revenue Agency has provided answers to questions asked by CSCB members regarding HST on customs brokers’ services. These questions and answers are reproduced below and are also available as a PDF document.
Members with additional questions, or questions regarding any of the information contained in this message, can contact the CSCB at firstname.lastname@example.org.
CSCB: The Canada Border Services Agency requires an export permit for certain goods being exported from Canada. A Canadian customs broker applies for the export permit (in Canada) on behalf of the Canadian exporter.
(a) If the Canadian exporter is registered for the GST, does GST/HST apply to the broker’s service for applying for the permit? What if the Canadian exporter is not registered?
CRA: A supply of a service is made in Canada by a Canadian customs broker. A determination would have to be made as to whether the supply of the service is made in a participating province, using the proposed place of supply rules in respect of services announced by the Department of Finance on February 25, 2010, in its document “Place of Supply, Self-Assessment and Rebate Rules for the Harmonized Sales Tax (HST) <http://www.fin.gc.ca/n10/data/10-014_1-eng.asp> ” and by the CRA on February 26, 2010, in its document “Place of Supply Rules for Determining whether a Supply is Made in a Province <http://www.cra-arc.gc.ca/E/pub/gm/b-103/b-103-e.pdf> “. There are no provisions in the ETA that would zero-rate the GST or HST in this scenario. As a result, GST could be payable at the rate of 5% or HST could be payable at the rate of 12%, if the service is deemed to be made in BC, or 13%, if the service is deemed to be made in the other participating provinces. Note that the rate of HST in Nova Scotia is proposed to increase to 15%.
The answer is the same for a Canadian exporter who is not registered.
(b) If a registered U.S. importer of the goods is billed by the Canadian customs broker for obtaining the export permit, does GST/ HST apply to the broker’s service? What if the U.S. importer of the goods is not registered?
CRA: We assume that the U.S. importer is the recipient of the service supplied by the Canadian broker. While the supply of the service would be deemed to be made in Canada, the supply of the services would likely be zero-rated under Part V of Schedule VI to the ETA. Because a customs broker would often be considered an agent of its client, section 5 of Part V of Schedule VI would apply to zero-rate a supply made to a non-resident person of a service of acting as the person’s agent or of arranging for, procuring or soliciting orders for supplies by or to the person, where the service is in respect of a supply to the person included elsewhere under Part V of Schedule VI or a supply made outside Canada by or to the person.
Where an agency relationship does not exist, it is possible that the general zero-rating provision for services under section 7 of Part V of Schedule VI may apply to zero-rate the supply to the unregistered non-resident.
The answer is the same for a U.S. importer who is not registered.
CSCB: If a Canadian customs broker who is also licensed as a U.S. broker prepares an entry for goods entering the U.S., and bills for this service from within Canada, is the service taxable if it is billed to the U.S. non-registrant importer? U.S. registrant importer? What if the Canadian exporter is billed for the preparation of a U.S. customs entry?
CRA: We assume that part of the service is performed in Canada, and therefore the place of supply of the service is deemed to be made in Canada.
The location at which a supplier prepares a bill for a supply is not relevant for determining the tax treatment of the supply. Under the ETA place of supply rules for services, a service will be deemed to be supplied in Canada if it is performed, or is to be performed, in whole or in part in Canada. As a result, a supply of a broker’s service that is made in Canada will generally be subject to GST at the rate of 5%, or HST at the rates of 12% or 13% if deemed to be supplied in BC or the other participating provinces, respectively, if the recipient of the supply is a Canadian resident (note that the rate of HST in Nova Scotia is proposed to increase to 15%).
If the recipient is a non-resident, and the Canadian broker is acting as the recipient’s agent when the service is being provided, the supply of the service would likely be zero-rated under section 5 of Part V of Schedule VI, regardless of the non-resident’s GST/HST registration status.
CSCB: Can you clarify customs brokerage services that are zero-rated? Does the fact that exports are zero-rated mean that any services provided with respect to exported goods are not subject to GST/HST? Are examples available?
CRA: Customs brokerage services may be zero-rated if they meet the conditions outlined in section 5 of Part V of Schedule VI to the ETA, as described in 1(b) above. If an agency relationship does not exist between the broker and the client, section 7 of Part V of Schedule VI may zero-rate the supply of the broker’s services where none of the exclusions in the provision apply.
Regarding the second part of your question, the tax status of brokerage services depends on:
a) Whether the service is performed in whole or in part in Canada (if not, the supply of a service is considered to be made outside Canada and is not subject to GST/HST);
b) If the supply is deemed made in Canada, whether the supply is determined to be made in a participating province in accordance with the place of supply rules for customs brokerage services outlined in Finance’s announcement of February 25, 2010 and CRA’s Technical Interpretation Bulletin of February 26, 2010. Note that where the supply of a service does not meet the description of a “customs brokerage service” under the Place of Supply (GST/HST) Regulations, the general place of supply rules for services, as outlined in both the Finance and CRA documents, will apply to determine if the supply is made in a participating province; and
c) Whether the conditions for zero-rating under section 5 or 7 of Part V of Schedule VI to the ETA are met, as discussed above.
No examples are specifically available.